International Business and Money Summary (all-inclusive) 211581 Questions and Answers

Foreign exchange market: - -market for converting the currency of one country into another country -Exchange rate: - -rate at which one currency is converted into another -Foreign exchange risk: - -the adverse consequences of the unpredictable changes in exchange rates -The foreign exchange market enables - -companies based in countries that use different currencies to trade with each other -International Businesses have four main uses of foreign exchange markets: - -1. When the payments a company receives for its exports, foreign investments, or from licensing agreements with foreign firms may be in foreign currencies 2. When they must pay a foreign company for its products or services in its country's currency 3. When they have spare cash that they wish to invest for short terms in money markets 4. Currency speculation: typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates -Carry trade: - -borrowing in one currency where interest rates are low and then using the proceeds to invest in another agency where interest rates are high -Spot exchange rate: - -rate at which a foreign exchange dealer converts one currency into another currency on a particular day -Forward exchange rates: To insure or hedge against - -risk in spot exchange rates